Pages

Saturday, January 31, 2015

A HuffPost/YouGov poll (6/20/13) found that 74 percent of the US public supports requiring companies to offer paid sick leave to their employees; paid maternity leave garnered 61 percent approval. In a number of recent polls, the idea of free community college received majority support (The Hill, 1/20/15)–one poll found that more Republicans favored the measure than opposed it, rather remarkable given that the idea was only recently popularized by President Obama himself.

So it's not voters' preferences that, in Blitzer's words, "could hurt Democrats" facing elections. A likelier reason is election funding. Political scientists Walter Dean Burnham and Thomas Ferguson observed that politicians largely depended on financing from economic elites (AlterNet, 12/18/14) in what were probably the most expensive midterms in history (Washington Post, 10/22/14)

This is entirely consistent with first Chief Justice John Jay's view that the people who own the country should govern the country, making a lie of Abraham Lincoln's "government of the people, by the people and for the people." So much for the left in the United States. There is in effect one party, the party of the ruling elite, which fields two candidates for each office to create a façade of democracy.

Citi called this result "plutonomy." It is aptly characterized as "oligarchic democracy," as Aristotle foresaw in Politics. Wealth and power skew the selection process. Aristotle thought that true democracy could be best achieved by random selection using choice by lot, thereby eliminating class bias.

Ralph offers an adult, metaphor free analysis of a situation characterized by "uncompetitiveness" [Ed: this is an inappropriate word here...] of a member nation of the Euro common currency union here at Ralphonomics, specifically the current situation in Greece.

I’m getting tired of people who weep and wail about austerity in Greece – unless the weepers and wailers have some nice simple solution to the problem, in which case I’m all ears.

The popular chant “austerity doesn’t work” is fatuous. That chant doesn’t begin to solve the basic problem.

For the benefit of the uninitiated, the basic problem is as follows, and it’s quite simple. If you just stop weeping and wailing for a minute, it’s easy enough to grasp.
If a country in a common currency area becomes uncompetitive, it’s external balance of trade deteriorates and it runs into debt.

For a country with its own currency, that problem is solved by devaluing its currency. E.g. the UK’s currency fell 25% in value in 2008, and no one I know personally even noticed.

In contrast, for a country WITHOUT its own currency the only real option is to cut wages and profits in money terms. That’s called “internal devaluation”

Ralph offers as a possible solution to thus situation, a cooperative internal devaluation, but admits that policy would probably be hard to implement politically.

I would point out that our Greek ancestors would solve this problem back when they were running a common Hellenic currency union by immediately converting all foreign claims into domestic claims when the exporters would return from their business in the import nation.

For instance to put this in contemporary terms, if Daimler would export some autos from Germany to Greece and take payment in Euros from their Greek customers, the net positive Euro balance of this auto business between Daimler of Germany and their auto dealer firms in Greece would be credited by the Bundesbank to the Daimler account in Germany in Euros, the and the cross-border liability would no longer exist between the subject non-govt sector entities.

In this way, the import nation would never accrue the "external debt" that Ralph identifies and is the current negative balance that is causing most of the heartburn in the situation with Greece.

In this era, Greece is in a position as perennial net importer within the Eurozone business environment due to the current location of the highly productive industries in the north.

So we have a few options; probably a few others.

FD: No "minotaurs" were used or abused in the creation of this post...

Friday, January 30, 2015

The speaker of the Russian Duma has asked a parliamentary committee to study a proposal to condemn the reunification of Germany in 1990.

Sergei Naryshkin earlier this week faced scathing criticism of Russia's annexation of Crimean peninsula when he spoke at the Parliament Assembly of Europe.

Russian news agencies say Communist deputy Nikolai Ivanov on Wednesday proposed a resolution to condemn what he called the "annexation" of East Germany in 1990. Ivanov said that unlike in Crimea, there was no popular vote to support the German reunification. Read more.

And Russia extended financial help recently to Greece. Looking to shake things up in Euroland and get back at the West. Things are heating up and Europe is right in the middle of it all. Potentially highly disruptive.

Highly provocative. UK fighter jets were scrambled to "escort" these Russian planes along their route. Civilian aviation was disrupted.

It said the two Russian planes did not enter UK airspace, but the manoeuvres were "part of an increasing pattern of out-of-area operations" by Russia.The planes were "escorted" by RAF jets "throughout the time they were in the UK area of interest", officials added. Read more.

Thursday, January 29, 2015

I just received this via email. It's the transcript of an interview that Russian Finance Minister, Anton Siluanov is giving with the clowns on CNBC Squawk Box tomorrow morning.

Interesting where he says Russia would give financial aid to Greece. Break up the Eurozone. Good idea!

If you read the whole thing you'll see that this guy's head is totally in a gold standard/fixed FX mentality. Will constrain Russia forever.

CNBC EXCLUSIVE TRANSCRIPT: ANTON SILUANOV, RUSSIAN FINANCE
MINISTER

Foulds, Hugo
(NBCUniversal) (Hugo.Foulds@cnbc.com)

PRESS RELEASE

CNBC EXCLUSIVE INTERVIEW: ANTON SILUANOV, RUSSIAN FINANCE MINISTER

Russia would consider giving financial help to debt-ridden Greece

WHEN: CNBC
EXCLUSIVE, today Thursday, 29th January 2015.

Following is highlights
of the unofficial transcript of a CNBC exclusive interview with Anton Siluanov,
Russian Minister of Finance with CNBC’s Geoff Cutmore.

Full interview will be
played out in Europe tomorrow morning on CNBC’s Squawk Box. All
references must be sourced to a ‘CNBC exclusive interview’.

CNBC’s Geoff Cutmore
(GC): Even as we’re speaking
to each other, we know that there’s a meeting going on in Brussels they’re
talking about potentially another round of sanctions. Can I ask you, how worried
are you that another round of sanctions at this stage, would cause a crisis in
confidence in the Russian economy?

Anton Siluanov(AS): Well it has always been our official position
that we are against any form of capital or trade controls - and of course
any sanctions are harmful because they cause a slowdown in the global economy.
And the sanctions that have already been imposed against Russia did negatively
affect us. However, Russia companies have adjusted, and Russia’s balance of
payments have adjusted, the rouble weakened, and as you might be able to see
life still goes on here and we just keep on living.

Our estimate is that
last year the Russian economy experienced two kinds of external shocks - one is
from oil prices and another from sanctions. The cumulative effect of those
shocks is around 200 billion US dollars - maybe a little more, but the main,
major influence was the fall in oil prices. Our estimate on the sanctions is a
roughly 40-50 billion shortage of capital, but again the main driver of this
slowdown is the oil price.

Jeff Greene is a guy who displays the typical arrogance of the rich.
He's a billionaire speculator who lives in a $200 million mansion in
Beverly Hills. He made his money shorting subprime back in the crash. (Now there’s
a really useful occupation that adds a lot to society.)

He says that the real problem that Americans have is that their
expectations are too high. They need to set their sights lower. (Not his of
course.)

Too high? Set their sights lower?

Is this guy a pompous ass or what? There’s forty million
people on food stamps and half of Americans who have no net worth at all and
people need to set their sights lower?

He goes on. He says, while tech is a big job killer the real
nemesis for prosperity-desiring Americans is the trend toward equalization of wages,
globally. Apparently in his mind it’s all convergence to the bottom and not the
other way around?

History would prove him wrong on both counts. Technological advances
have always spurred massive creation. Did he ever hear of Henry Ford? Furthermore,
wage trends always tended to converge from low to high, not other way
around.

The reason we have declining or static wages has been due to policies
specifically designed to make that happen. It’s called Neoliberalism and it’s
been in place for the last 40 years. Deregulation, “free trade,” the elevation
of markets, profits and capital over labor, the environment, common sense and everything
else. That’s the reason it’s happening.
Policy has shut the door on prosperty for all but a few and only policy can
reverse it.

Greene departs from other, typically pompous rich brethren when he says that the rich should pay more taxes.
However, I’m sure he says that knowing that he’ll never have to worry about
that because his “kind” have bought the system and they’re not about to let
that happen. So he can feign being a magnanimous good guy when he’s really just
a pompous ass.

Resetting expectations lower is nothing more than accepting a form of imprisonment.

This guy is proof that Keynes was right when he said “Let’s
euthanize the rentiers.”

SNB has laid off pressing on this rate in the -0.8% to -0.9% range; probably leaving themselves room to lower further if (to them) they think this is somehow necessary.

I'd assume that now the CHF exchange rate is in the hands of the Swiss exporters and their bankers; now that the SNB has stepped away from actively pressing on this rate.

If the Swiss exporters cave on price in order to maintain share in their export markets, then the CHF should weaken vs. the currency of the specific export nation.

USD/CHF has broken out firmly above 0.90 over the last few days and seems to be headed back towards where it was before the big policy adjustment on the 15th; which would indicate that Swiss firms are starting to reduce prices for their products a bit in USD terms to their US customers and cannot hold the increased prices in USD terms that the new policy rate imposed.

Due in no small part to the present stingy fiscal backdrop here in the US, "money is too tight" for anyone to think that they could impose an over night 15% price increase in USD terms with impunity.

First of all the banks don't need to be saved. They can still function in the role of clearing and settlement as long as the central bank makes sure their liabilities are met. No problem there--the libabilities are in rubles.

Did anyone over there ever have a look at Japan? Those banks have been zombies for decades thanks to loads of really bad investments, but no problem...people deposit money, checks get cashed, cleared...all the usual banking stuff happens without a hitch. They even make loans; the ones that are solvent at least.

Russia's in dire need of infrastructure investment. In fact that would be a great way to immunize the entire Russian economy against Western sanctions: boost infrastructure investment, massively.

But instead their new finance minister (excuse me, I meant to say, finance idiot) is imposing austerity as a way to "fix" the economy. Russia apparently ran out of rubles(?) and the ones they got left they're giving to the banks? Why this is happening I am not sure? I can only chalk it up to idiocy at the top levels of leadership.

I was bullish on Russia. I even bought some Russian ETF's recently. But now I think it's a dumb move. So much stupidity going on. So much. I really feel bad for the Russian people. They're good people. They deserve better.

This is a super conservative forex trading system that I developed for those who are very risk averse and want to sleep at night.

This is an algorithmic system that is very easy to implement and takes about 20 minutes per day of your time. After that you pretty much leave it alone and let it run. (It does not trade pegged currencies.)

The system will never take more than a 1% loss on any trade. Over the past four months it has executed 167 trades (roughly 42 trades per month) and has returned 18%, on track to deliver close to 60% return for the year.

Potato growers in Western Australia's south-west say a potato giveaway in Perth has left them unable to sell hundreds of tonnes of their own produce.

And:

The sad reality this summer is tonnes and tonnes of mangoes have ended up on the scrapheap for no reason other than their appearance.
A loss of juicing contracts and a bumper season in the Mareeba-Dimbulah district resulted in tons of blemished fruit, that won't make the premium grade, being thrown out.

Real surpluses everywhere! Oil! Nat Gas! iPhone6!

Just not enough "money" around to buy the abundant produce it seems. After all; "We're out of money!" as they say. We have mangoes and potatoes coming out of our ears and "no money!".

Tuesday, January 27, 2015

Analysis of six decades of data found that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality.

This article at Bloomberg is from the 19th so it is a bit dated and not quite real time; but it appears the initial reaction by Swiss firms is/was to hold the line on price in response to the SNB's recent policy changes.

Here are some excerpts:

As the Swiss franc strengthened some 20 percent against the euro and the pound, Zermatt’s tourist office suggested four options to the hotels, chalets, restaurants and cable-car firms that comprise its 1,100 members: reinstate the 1.20 franc per euro cap for European visitors; offer discounts of 20 percent; cut prices by 10 percent; or take no action.

“I’m considering holding our prices in euros for a while,” said Southwell, who works for a consultancy in Zurich and rents out his century-old wooden chalet overlooking the Matterhorn...

Travelers who book their summer holidays in Switzerland before the end of February will also pay pre-Jan. 15 prices, Inghams said. After that, the company’s pre-purchased funds will run out and prices will be adjusted, it said....

“Lowering the prices would be the wrong strategy because we have already done all the calculations for this year,” said Rainle, ....

“We will not try to compete on price but on quality,” according to Patrizia Bickel, spokeswoman for Jungfraubahn, who said it’s important for planning purposes that the currency stabilizes.

“Our marketing effort will be intensified outside Europe.”

The information in this article is not indicative of the Swiss immediately caving on price.

This initial firm reaction by the Swiss business community has coincided with a stability in the CHF exchange rate after the initial adjustment.

I was on The Economist site the other day reading something and got a "pop-up" ad for Rolex wrist watches... which I don't recall ever seeing one of those before.

So it looks like the Swiss business people are showing some moxie and at least are not going to go down easily.

John develops a nice analogy that even Forbes readers should be able to get.

On Monday, the anti-austerity party SYRIZA won a decisive victory in Greek parliamentary elections. This throws into question not only the government’s stance with respect to the various bailout and austerity packages, but even their continued membership in the EU. As well it should, for the game is stacked against them and those who write the rules are making sure it stays that way.…

Typical dysfunctional economy run by neo-leftists in Venezuela becoming manifest. Story at al Jerzeera here.

People line up outside a supermarket to buy toilet paper in Caracas, January 12, 2015.

Three states in Venezuela have banned residents from queuing outside grocery stores at night, after reports of fights breaking out in recent weeks.

Venezuela's grocery shortages have worsened since December, forcing many to wait in lines for hours to buy basic goods.

Pretty disgraceful when you need $100 oil in order to be able to wipe your own ass.

Don't they even have a paper mill there in that country?

Meanwhile last year at the Stochi Olympics in Russia, with the $100 oil they DID have the toilet paper but you just were forbidden from flushing it down the toilet; NBC's Bob Costas famously contracted double conjunctivitis.

What is it with these neo-leftists and the inability to domestically provision proper lavatory services...

Their plan is probably: "pray oil goes back up so we can again afford to buy stuff from the civilized nations....".

Monday, January 26, 2015

They would not be too bad at 1:1 in fact a bit of a bargain. Similar then to what one would pay at a Cracker Barrel restaurant here in the USA.

They would not be a very good value at EUR/USD = 1.50 Then you would be looking at $12 for a 1 litre beer and $17.25 for half a chicken.

So we can see how the exchange rate reflects the real terms of trade between the nations. Europe is moving back towards a more reasonable exchange rate with the USD after spending many years at an increased level of real terms in favor of the Eurozone.

Austerity foisted upon a currency zone that prefers to export seems to work well if your goal is to lower the real terms of trade for your currency zone and make local industry "more competitive".

The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.

“In its current form, EMU is not viable in the long run”. That quote comes from a Report – Repair and Prepare – Strengthening Europe’s Economies after the Crisis – jointly published by the – Jacques Delors Institut (located in Berlin) – and the Bertelsmann Stiftung – (located in Gütersloh, Germany). The Report purports to lay out a blueprint to prepare Europe for the “next potential threat to its very existence”. It proposes a “path towards renovation” to create an “ever closer union”. They claim that they have taken up this task because there is “extensive ‘crisis fatigue’ and ‘euro area debate fatigue’ in “in governmental circles and the media”. I would call it adherence to ideological Groupthink rather than fatigue. There has been a major failure yet none of those who created the failure have put their hands up to take responsibility. Once they dismissed the problem as being caused by “profligate and fat Greeks (insert vilified nationality as to your preference)”, various policy makers and media commentators resorted to the even more amorphous “structural problems” to explain the on-going crisis. The media has been full of captive writers who just reiterate press releases from neo-liberal politicians and/or mainstream economists. So is this new Report different? Is their plan viable?

Before you get too excited, you might also like to know that the former organisation was founderd by the French politician after he finished his time as European President.Delors will be remembered as the French neo-liberal (despite his socialist affiliation) who oversaw the disastrous Delors Report that informed the Treaty of Maastricht. It is clearly pro-Eurozone.

Alexis Tsipras and his party, Syriza, can talk all they want about ending austerity, but they simply can't do it without their own currency.

When all the cheering and celebration dies down Greece will be left with a choice: they can move forward on the path to self determination, sovereignty and dignity, but only if they bring back the drachma.

Or, they can stick with the euro and naively believe they will be able to end austerity, rehire fired public workers, raise salaries and do all those other things that they promised to do, but can't.

This is the classic problem of the modern day left wing. They talk big about all these progressive ideals--help the middle class, workers, safety nets, education, etc, but they simply don't understand or, don't buy into the economics necessary to do these things.

Same problem everywhere. Here, too, in the U.S. (Although there's some hope with Kelton.)

By the way...so far this morning the euro is trading in the classic, buy the rumor sell the news pattern.

For example, something along the lines of OBT&E, which is a method, and also a reiteration of Natural Selection.

It's also clear that each and every one of our methods is necessary but not sufficient without ongoing adaptive intent - which becomes a method for coordinating all other methods. The utility of all methods still depends upon slowly molding a human culture with a collective focus on Cultural Adaptive Rate as the common guiding light - for all the milestone, Desired Outcomes we pursue as we continuously muddle on.

We have countless options, and they are usually increasing. Increasing our cultural Adaptive Rate reduces to collectively sensing, on any given day, what permutations of our ongoing choices will actually optimally INCREASE rather than reduce our net options.

That’s a practical math problem. In fact, it's a constantly changing, massively multi-variate, adaptive cultural calculus task which we can only pursue via brute-force group calculation (utilizing massively parallel feedback, i.e., by Democracy). By definition, our survival challenges can never be modeled as fast as they change. We have to calculate them, via distributed, organized trial and error. That, plainly and simply, requires complete focus on re-connecting everyone to everyone, and summarizing all available feedback soon enough to matter.

No predictive power, but seemingly limitless adaptive power.

In other words, you can't have your evolution and Centrally Plan it too.

It seems that the baseline for all evolving organizations - of any sort whatsoever - is to have 80% of the components (whether cells, humans or even whole nations) enslaved & poorly managed by a minority still operating by yesterday's methodologies. Some things are always, briefly, the "keystone" species which both enforce existing structure & constrain Adaptive Change in every ecosystem. There are no clear lines separating phenotypic persistence, Institutional Momentum, and hegemony. Yet we must manage those distinctions as best we can.

“We have zero predictive power, but through training and education, we can determine what aggregate adaptive rate we can generate, when each novel group challenge appears.”

What's that old saying? If you really love something - even the future for you, your kids and your nation - then set it free? No, not unprepared in the middle of the road, figuratively, but in a somewhat protected practice field, and then make the sacrifices necessary to protect it as it learns how to be free from your constraints.

That seems to be what human evolution is all about. We can't have our aggregate evolution and Centrally Plan it too.

No, 2 + 2 (+ something unexpected) never equals just 4. Yet our electorate has to keep making that calculation on a national level, every day, and adjust to the continuous surprises. Human cultures compete on the basis of their aggregate cultural-CPU designs.

Saturday, January 24, 2015

You can't blame some citizens for considering the overall validity of the title conjecture, given our current context.

I wonder how long it takes, on average, for the average local cop on the beat - fresh out of a police academy - to become aware of, let alone come to grips with, the default institutional lobbying that comes from perennial class competition, whether overt or "Innocent Fraud".

With current education practices, the bulk of our citizens seem to remain politically naive for most of their lives, so there's no reason to expect the bulk of police officers to catch on much faster, if ever.

Progress requires much more organizational effort to get all citizens on the same page, and realizing that we're all in this together.

There's so much to gain from social coordination (teamwork), and each year we've less to lose.

Meanwhile, it's still true that adversarial approaches are unlikely to work. In fact, they'll play into classic methods for confusing, dividing & conquering electorates by default, i.e., narrow business lobbies & politics as usual. Here's yet another example.

"Sam Adams, like five of the fifty-six signers of the Declarations of Independence, attended Boston Latin School [at ~age 7]. Required reading at the Boston Latin School for a student's first four years included Aesop's Fables, one of the first of which is a tale of a wolf who devoured a lamb despite the lamb's refutation of all the wolf's accusations against him. The moral of the story, according to Aesop, is that 'The tyrant will always find a pretext for his tyranny.' ...

In years five through seven of the school, students progressed to reading letters, essays and orations of the Roman politician Marcus Tullius Cicero. ...

[Subsequently,] Sam Adams entered Harvard in 1736 at age 14."

Which was normal for that day, at least for motivated families in and around Boston. So why isn't a similar educational rate "normal" today? After all, a human mind is a terrible thing to waste, and so is a national group mind.

In every single one of my prior classes I always told students NEVER to trade "pegged" currencies. So the whole blowout related to the Swiss National Bank ending the EUR/CHF peg was avoided.

The platform that I teach on and the one I have been using to trade is Oanda. Oanda did not experience any problems with customer accounts in the aftermath of the SNB decision. I have been trading on Oanda for 14 years. It is a great platform.

The course is taught online using Cisco's Webex meeting platform. No special software is needed. All you need is a computer and internet connection.You will receive with a link to "join the meeting" at the appropriate time. You don't have to join or sign up to Webex.

Course hours are 8am - 4pm NY time.

All sessions are recorded so you will be able to download them to review at your convenience.

No prior Forex trading experience is needed. I have taught many beginners as well as seasoned traders.

The first two days cover Forex theory and fundamentals, MMT and how to use the Oanda trading platform. The next three days are LIVE trading. You see exactly what I am doing and how to execute my trading system.

During the live trading sessions I talk a lot about the "Mental Game." That's where I explain to you how to achieve the proper mindset to ensure success. I often say that trading success is 100% mental and I am not exaggerating. I give you a specific set of exercises and techniques to help you develop your mental game.

The course teaches great "defense." That means, how not to lose. I also explain how everything ever taught with respect to successful trading is wrong.

In one part of the course I ask students to give me a totally unplanned, spontaneous trade that I had not time to analyze. It could be in any currency pair, long, short...doesn't matter. I will trade that to a profit every time or worst case, a break even.

My course fee is normally $2995, however I have lowered the price to $995 this one time.

I truly feel that you will emerge from this course with the necessary skills to make money as a currency trader. The level you take it is up to you and will depend a lot on your ability to master the mental and behavioral traits. The actual buying and selling strategies and tactics I am certain everyone will master without a problem. I guarantee it.

This is the really big news in the Eurozone where, until last week, the ECB’s monetary operations did not include the possibility of trading in the government securities market in the same way the Fed, the Bank of England, or the Bank of Japan do.

With QE, the ECB has become an actor in the government securities market and, as happens in the U.S,, the U.K., or Japan, this provides continuous liquidity to the bonds being traded, removing default risk.

The ECB is now acting like a central bank.

QE will not last forever. But the new attribute of the ECB as a dealer in government bonds is here to stay.

They keep lowering this policy rate by about 0.1% every day. The lower bound of the current policy range is -1.25% so they should be there in another 2 or 3 days.

Let's watch to see if there is a reaction in the CHF exchange rate vs. EUR or USD when they stop lowering this rate next week.

While this rate lowering has been going on the CHF has been pretty steady vs. those two currencies. I'd assume they are looking for a weakening in the CHF vs. the EUR and USD as they continue to lower this policy rate. If so they have not been getting the response they are looking for.

The decision amounts to an act of political defiance by a majority bloc in the Governing Council - unmistakably a debtors' cartel of Latin states and like-minded states - and therefore opens an entirely new chapter of the EMU story.

This Latin revolt is to violate the sacred contract of EMU: that Germany gave up the D-Mark and bequeathed the Bundesbank's legacy to the ECB on the one condition that Germany would never be out-voted on monetary issues of critical importance.

Nor is the irritation confined to Germany. The Tweede Kamer of the Dutch parliament was up in arms today, the scene of fulminating protests from across the party spectrum. "Dutch taxpayers should not be made liable for the debts of the Italian state," said the liberal VVD party.…

Yet this is a thin shield. Prior rulings of the court have made it clear that scale matters. The bigger it is, the more clearly it leaks into fiscal policy and violates the budgetary prerogatives of the German parliament. This is a sensitive matter. The court has ruled that no supranational body may usurp the budgetary powers of the Bundestag, for to do so would be to rip the heart out of Germany's post-War democracy. This legal battle will drag on.

Let me be clear: I have argued for at least three years that the Latin bloc should seize control of the ECB's machinery and call the German bluff, and this is exactly what has just happened.

They have perfect right to do so. The ECB's policy has been far too tight even for Euroland as a whole. For them it has been disastrous. The slide towards deflation - and contracting nominal GDP - has caused their debt trajectories to spiral upwards even faster.

Yet nobody should have any illusions about the implications of such defiance. What is at stake is German political consent for the euro project.

With the crisis is the EZ, the dispute between the UK and the rest of the EU about open borders, and the civil war in Ukraine along with sanctions on Russia, Europe is in the worst state its been since the lead up to WWI and WWII. Fractious.

It's true in the sense that lower oil prices raise the real incomes of oil consumers. It's also true that a surprise drop in inflation of the sort we've seen can temporarily raise real wages.

However, in the longer-run, real wages aren't affected by inflation. If they were, we could achieve higher wages by (credibly) reducing the inflation target - but nobody believes this.

Instead, real wages depend upon real things like productivity growth and workers' bargaining power, and these aren't much affected by inflation: at moderate levels of inflation, there's no link between inflation and GDP growth, for example.…

In a modern economy with a sovereign currency, both banks and the government can create additional deposits for the private sector. Banks achieve that through lending, and the government through bond issuance. A third way, which doesn’t work for everybody, is to have exports higher than imports, which must result in a net inflow of net financial assets, among them deposits (ex-post). In the euro zone, the private sector does not want to borrow even though interest rates are at zero. If you want a cause, then name it confidence: the firms and households are pretty confident that in this situation of weak demand, high unemployment and falling prices they do not want to more borrow.

It seems like the only way to get the monetary circuit going in Europe is through the creation of private sector deposits by a) cutting taxes (for those who can reasonable expected to use the additional deposits for spending) or b) increasing government spending (which directly creates deposits for the private sector). What this does not mean is a) government has to be bigger (let them hire private companies to do public jobs if you think that it is welfare-improving) or b) that this will become a permanent feature of the economy. As long as the private sector does not spend, government jumps in. When aggregate demand runs hot, taxes can be increased and the central bank’s interest rate hiked up. This would constitute a return to normal. No mass unemployment, the usual bickering about higher taxes, and savers getting money for nothing.

The problem lies in the insistence on "structural reform" (lower public spending and instituting wages "flexibility") in order to become "more competitive" globally, which is a race to the bottom that is deflationary.

This time it’s different. As part of this broad based fight to reverse the current deflationary forces, the national CB’s will now be buying their own nation’s debt, thereby, for all practical purposes, eliminating default risk. And with no mention of fiscal conditionality. Taken at its word, this means the latest QE policy has removed the ECB’s leverage over national govt fiscal policy, as the ECB did not tie it’s securities purchases to fiscal compliance.

Therefore Greece and Italy, the two members desiring fiscal expansion, are operationally free to do so without the threat of default driving up their interest rates. They may face EU penalties, etc. but those are a very different matter than the prior default risk.

So the door is now open to anyone bold enough to step through. However they probably don’t know it and probably wouldn’t go there if they did…

We've been writing about abuses of power and process at the Congressional Budget Office and will be ramping up our coverage further now that ranking member Bernie Sanders has a new team at the Budget Committee, which among other things supervises the CBO. And the CBO is going to be the subject of a major political fight over how it prepares its estimates of the economic and fiscal impact of pending legislation. As we'll discuss below, Republicans plan to mandate that the CBO use something called dynamic scoring, which has the effect of making tax cuts look far more beneficial to the economy than they are, by effectively claiming that tax cuts boost growth, which then boosts tax receipts. It would effectively institutionalize the Laffer curve, which has been widely and repeatedly debunked. As troubling as this development is, there's already a lot not to like in how the CBO operates.…

The reason that the CBO matters so much is that its estimates are taken as gospel, as unbiased, accurate, fair, and “nonpartisan”. But as we’ve demonstrated in previously posts, the CBO has repeatedly taken what amount to partisan positions and has skewed its analysis in gross violation of its own procedures to produce results that have had enormous impact on policy debates. The CBO is firmly neoliberal, which in and of itself represents a considerable bias.…

The fundamental beef of Follette and Sheiner with the CBO model is that it naively assumes past growth in health care spending as the basis for its long-term projections. The result is that it shows that trees will grow to the sky. One of the things anyone who has built forecasting models will tell you is you come up with assumptions that look reasonable and then sanity check the output (for instance, does your model say in year 10 that your revenues will be 3x what you can produce given your forecast level in plant and investment? If so, you need to make some revisions). The Fed economists point out numerous ways that the model output flies in the face of what amounts to common sense in the world of long term budget forecasting.…

Jeff Madrick notes:

The problems with the CBO are bigger than this latest brouhaha. First, they have structural and institutional problems.…

The CBO, much like the Fed, are bastions of hidden power that lie outside democratic accountability. But the CBO’s and OMB’s clout is even less visible than that of the central bank. CBO forecasts are treated by Congress and media as gospel. The CBO is assumed to be above partisan influence. But it is partisan in a manner that is not widely understood. It is deeply neoliberal in its orientation, and often acts as a lobbyist rather than an analyst, for instance, issuing

One of the big reasons that the CBO manages to avoid criticism is that, like the private equity industry and the Fed, it shrouds itself in secrecy. It seldom makes its models public,…

The CBO also too acts too often an advocate rather than the dispassionate analyst that it is mandated to be via statute.…

This is the key failing of neoliberal capitalism, as well as any social, political and economic system based on individualism. The assumption of homo economicus as rational utility maximizer by nature is wrong. This assumption underlies the so-called "laws of economics" that are supposedly similar to the laws of (19th century) physics based on atomism. Human being are not like atoms and don't behave like atoms.

The more correct conception is homo socialis, in the Greek of Aristotle, zoon politikon, that was developed millennia ago. For Aristotle the end or goal (telos) of humans is living a good life in a good society. Then question becomes what is a good life and what is a good society, and how do they relate to each other to result in a full human life.

The rule of law and rights are fundamental to this, along with the recognition of universality along with individuality, that is, all people share the same nature as human persons even through each is unique as an individual.

That's right. For my upcoming Feb 2-6 Forex trading course I will only be charging $995.

That's a savings of $2000 dollars off the regular course fee!

You still get the same, intensive 1-week online Forex training boot camp where I teach you...

Market Composition

Applied MMT

Mental Game

Read what some have said...

“Mike, I can’t thank you enough in sharing with me your knowledge and expertise in how to trade forex — most specifically, teaching me the mental aspect of trading. Mike knows what the hell he is talking about. In our three days of trading there was indeed not one losing trade; at worst, we broke even. And don’t worry about the atmosphere. Mike is patient, lively and funny — you couldn’t ask for a more friendlier atmosphere. Thanks again, Mike.” -Peter D

“I came into the boot camp not knowing anything about forex or forex trading. Mike was able to convey a clear step by step methodology and demonstrate trading techniques that not only anyone can understand but are actually practical to use. Mike describes how to understand what makes the Forex markets move, how to position yourself for success, and if need be, how to work out of a negative position. Mike was very engaging, entertaining, and kept a fast pace for the entire class. I had high expectations for the class and I can say that not only were my expectations met but, in many way they were exceeded. I now have the knowledge and confidence to begin forex trading. I highly recommend the boot camp and I am sure if you take the class you will feel the same.” -Dan

"First let me say that you have revolutionized my trading…most importantly me. The lecture for me was like getting a shot of steroids! I have increased in confidence just from your seminar you’ve taught. I was very timid of losses and making mistakes, but your talks, strategy and kick in the butt has transformed me. Thank you!” -Mike

There is no consensus among economists about the size of the multiplier of government purchases. It is not clear either how multipliers vary with the state of the economy. This column presents new evidence on this issue using large historical data set from the US. The findings suggest that there is no evidence that fiscal multipliers differ by the amount of unemployment or the degree of monetary accommodation.…

Our findings suggest that there is no evidence that fiscal multipliers differ by the amount of slack in the economy or the degree of monetary accommodation. These results imply that, contrary to recent conjecture, government spending multipliers were not necessarily higher than average during the Great Recession. Our estimates imply that government spending during WWII lifted the economy out of the Great Depression, not because multipliers were so large, but because the amount of government spending was so great.

Thursday, January 22, 2015

Beijing doesn’t have to choose between land and sea predominance. It could have both.

The DiplomatIs China Bidding for the Heartland?Francis P. Sempa | Assistant U.S. Attorney for the Middle District of Pennsylvania, an adjunct professor of political science at Wilkes University, and a contributing editor to American Diplomacy

In this interview with Italian newspaper La Repubblica, French economist Thomas Piketty explains why the Fiscal Compact was a mistake, what the ECB can do with a Quantitative Easing (QE) programme, and how the Eurozone needs to be reformed in order to make it sustainable in the long run. (The video is in English but sometimes there is an Italian video ad).

"They" have already anticipated that. Assets don't "inflate," they "appreciate." Over-appreciation with respect to underlying value is a "bubble" rather than "inflation," and asset bubbles are self-correcting in markets.

It's all in getting the terminology right.

Actually, an intention of QE was for risky assets to appreciate, thereby creating a wealth effect that was supposed to increase spending and demand for goods and services, leading to increased investment and hiring. Didn't happen that way.

Samuelson bastardizes Keynes, and Friedman buries Samuelson. Result? Another global depression that the world is still in the firm grip of as deflation becomes ascendant.

Project SyndicateThe Fall of the House of SamuelsonRobert Skidelsky | Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords

Adair Turner | former chairman of the United Kingdom's Financial Services Authority and former member of the UK's Financial Policy Committee, is a senior fellow at the Institute for New Economic Thinking and at the Center for Financial Studies in Frankfurt

Wanker of the day.

The ECB’s New Macroeconomic Realism
Jeffrey D. Sachs | Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals.

In the context of last Tuesday’s State of the Union, Pavlina Tcherneva was interviewed by Wall Street Journal Live‘s Sara Murray on the issue of the effectiveness of policies to combat widening income inequality.

Perhaps a less bearish report on the price situation in the European steel industry from MEPS in the UK at the beginning of the new calendar year.

Many German buyers feel that there are no supporting arguments to justify the proposed flat product basis rise, given the mills’ lower raw material and energy expenditure. Moreover, despite the fact that there are few attractive third country import offers, due to developments in the euro/dollar exchange rate, supply is still in excess of demand. The majority of first quarter business has already been finalised at the old levels.

The French market remained quiet in early January, following the long Christmas/New Year break. It was still too early to measure the true level of activity. Some end-users partially filled their order requirements before the holiday, while others did not.

MEPS has noted no significant changes in flat product basis values in the Italian market, where most companies did not return from the holidays until January 7, at the earliest. At this stage, it is difficult for the steel producers to judge the true level of demand, particularly with the uncertainty surrounding the oil price and the continually dropping value of the euro.

UK buyers are dubious about the successful implementation of the first quarter increase proposed by ArcelorMittal, since they have received much cheaper offers from Nordic suppliers. The exchange rate is making Chinese quotations unworkable at present. Service centres had good sales in December and January has also started well. Overall, both mill and resale values are holding up.

The situation in Belgium is virtually unchanged from December 2014. The market is described as “sleeping”. With raw material costs low, as well as demand, buyers question why steel prices should go up. A number of service centres placed orders just before Christmas and, therefore, are not in any particular hurry to conclude new deals. Resale business is very competitive. Third country imports are virtually non-existent as the euro is weak against the US dollar.

Basis figures have hardly changed in Spain. Buyers explain that, although they are aware of ArcelorMittal’s desire to lift prices, other suppliers have not yet made their intentions known. The general opinion is that the announcement will, at least, halt the downwards tendency that was prevalent in December 2014. Real consumption is stable. However, distributors report that resale values are under renewed pressure.

I would say that this report is less bearish than the December reports, but perhaps not even neutral, and certainly not bullish.

A top German official has said the country supports Europe's efforts to kick start the region's economy -- including a quantitative easing (QE) program -- but that other countries have to sell reforms to their citizens.

"The task for Germany now today is, through its own policies, structural reforms, its own investments, to support the EU and the Commission when it brings on to the market, so to speak, its stability package,"Sigmar Gabriel, vice-chancellor and federal minister of economic affairs and energy of Germany, said at the World Economic Forum Thursday in Davos, Switzerland.

"But every nation," he added, "has to have the courage to broach such structural reforms and speak clearly about them without making people afraid. This is difficult."

There could be significant political cost—such as losing elections—from such structural reforms, Gabriel said, but stressed there was no other choice.

"There is no alternative. The alternative is to simply prolonging the crisis and this situation becomes untenable for citizens," he said during a discussion about Europe's economy.

Then comes the delusional appeal to the confidence fairy.

"How can one give people the sufficient confidence to believe that they will benefit from...these structural reforms?" Gabriel added.

"That is a difficult task for politicians to give such confidence to the electorate, so they can believe that their children will be better off. That is one of the major task of politicians and I think some have been quite successful."

The UK Guardian article (January 20, 2015) – Davos 2015: sliding oil price makes chief executives less upbeat than last year – reported that the top-end-of-town are in “a less bullish mood than a year ago” and that “the boost from lower oil prices is being outweighed by a host of negative factors”. The increasing pessimism is being reflected in the growth downgrades by the IMF in its most recent forecasts. A significant proportion of the financial commentators and business interests are now putting their hopes on the ECB to save the world with quantitative easing (QE). That, in itself, is a testament to how lacking in comprehension the majority of people are about monetary economics. QE will not save the Eurozone. But I was interested in this pessimism in the context of falling oil prices given that with costs falling significantly for oil-using sectors (transport, plastics etc) and disposable income rising for consumers (less petrol costs), the falling oil prices should be a stimulating factor. I recall in the 1970s when the two OPEC oil price hikes were the cause of stagflation. So why should the opposite dynamic cause ‘stag-deflation’ (a word I just invented)? There is a common element – fiscal austerity – which explains both situations.…

So after much gnashing of teeth the ECB has finally capitulated and is going to start buying government bonds from the market in a desperate attempt to be seen doing something useful.

Of course they have swallowed the line that somehow this is going to increase bank lending across the continent and generate a 'wealth effect'. Of course it isn't because they have their causalities completely the wrong way around.

However the string pushing will no doubt continue until morale improves.But there is an 'interesting' artefact about to happen due to the way they are planning on structuring their purchases.…

They seem to be taking this policy rate down about 0.1% per day or so since the big one-day drop last week the day of the announcement...

Whatever process they are using to adjust this rate is ending up supporting the CHF vs the USD and EUR while the SNB probably wants these currencies to rise vs the CHF as balances of these two foreign currencies are about the only financial assets the SNB has... these 2 financial assets and gold, that is about all that comprises the SNB balance sheet.

And I'd assume the SNB is sitting on big losses on these 2 currency positions based on the huge moves down by these currencies last week vs. the CHF.

At this pace, they should be about at the lower limit of this policy rate range of -1.25% by next Wednesday. At that point maybe they will finally get some of the CHF weakness they are probably looking for as they will have to stop whatever it is that they are doing to lower this policy rate everyday.

This is similar in outcome to our US Fed finally stopping the QE and then we can finally get the nice bond rally we've had and lower rates that current borrowers are now finally able to take advantage of.

In an interview at Davos with Bloomberg News related to growing concerns about rising wealth inequality and its corruption influence on American politics economist and NYU business professor Nouriel Roubinistated as a matter of fact that it would be hard for the US to overcome wealth inequality because the US political system was based on “legalized corruption” which meant rich people – having more resources to bribe politicians with – would generally prevail.

Over the past approximate quarter century of so-called economic globalization, Wall Street’s ability to be the home of the only dominant “global” rating agencies to bestow ratings on the credit-worthiness of the world has been one of the most effective weapons of financial warfare in the Wall Street arsenal. They rate nations as well as private corporations. Now an answer to the Moody’s-Standard & Poors-Fitch US rating monopoly is coming. Not from the EU, where it is long overdue. It is coming from Russia and China, as so many bold and challenging initiatives of late.…

Unlike the politically impotent EU, however, Russia today is not the Russia of the corrupt Yeltsin era of the late 1990’s. Vladimir Putin and China’s Xi have agreed to create their own international credit rating agency and it plans to open for business this year, 2015.

The Universal Credit Rating Group (UCRG) plans to begin official independent ratigs in 2015 to challenge the Moody’s, S&P and Fitch ratings monopoly, according to RusRating Managing Director, Aleksandr Ovchinnikov.

The new agency will be based in Hong Kong. Interestingly, there is a third equal partner to Russia and China in UCRG. In addition to China’s Dagon Credit Rating Agency, Russia’s RusRating the US-based independent Egan-Jones Ratings is partner in the new UCRG. Each member will hold an equal share in the venture, with an initial investment of $9 million. In effect, three already well-established national independent rating agencies form the new UCRG joint venture. It is a serious challenge to the New York Big Three monopoly.

Egan-Jones Ratings Company, also known as EJR, founded in 1995 is a very interesting artner for Russia and China raters. It is unique among US nationally recognized statistical rating organizations (NRSROs) for being wholly investor-supported, not client-financed, eliminating the gross conflict of interest of the Big Three. On April 5, 2012, Egan-Jones was the first rater to downgrade the credit ranking of the United States. In addition Egan-Jones was also the first to downgrade WorldCom and Enron.

The UCRG was officially created in June 2013 and has since been finalizing its business structure. Ovchinnikov added that, “When the issue of creating an agency alternative to the ‘Big Three’ was raised, we in fact offered a project that was ready to be launched and was supported by the governments of Russia and China.” He explicitly pointed to the bias of the US Big Three raters to be overly “generous” to US and EU clients while being biased against developing or emerging countries such as the BRICS—Brazil, Russia, India, China, South Africa.

Now with an independent credit rating agency, a $100 billion BRICS Infrastructure Bank and strategic local currency agreements in place, Russia and China, Brics for Brics, are establishing the architecture to a genuine alternative to the destructive neo-colonial IMF and World Bank and the tyranny of the Wall Street dollar system. The year 2015 will indeed by interesting. Poor Mr. Soros might have to look for another job.